S&P 500, Nvidia, Russell 2000: What the charts reveal
Small cap stocks, as represented by the iShares Russell 2000 ETF (IWM), have reached their lowest levels since President Biden's election, breaking below the 23-month low and 80-month low. Michele Schneider, Chief Strategist at Marketgauge.com, explains why "typically that would be a recessionary indicator."
Watch the video above to hear Yahoo Finance's Jared Blikre and Michele Schneider analyze the charts for the S&P 500 ETF (SPY), Nvidia (NVDA), and Russell 2000 indexes.
Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.
Video Transcript
JARED BLIKRE: Let's talk about the S&P 500 first. And we'll get into some of the small caps and tech stocks. But first, here's a year to date, look at what's happening. 4,200 in the index. If you're looking at SPY, it's 420. We can see we broke that very recently. What are you seeing in the technicals here? Anything to be concerned about?
MICHELE SCHNEIDER: Well, what's so interesting coming into today was that the McClellan Oscillator or the market breadth actually stopped declining while the price continued to which, generally means that the selling may be at this point in time drying up. So that 420 or 4,200 level is important. But you can see, if you go back to May and June, we're coming into some support levels, which probably means a bounce. The question is, how far? That 417 to 420 level will be the key resistance.
It's also interestingly, a 23-month moving average, which means that whole expansion we saw over that two-year business cycle, the first half of this year has now been violated. And so most likely, it points to a stagnation, rather than maybe the end of the whole market.
JARED BLIKRE: All right. So maybe, a bounce is in the cards. But I'm telling you, if I look at the Russell 2000, this has simply fallen out of bed, as you heard Diane say, lowest level since basically the Biden election. What are you seeing in the small cap space right now?
MICHELE SCHNEIDER: Well, yeah. I mean, this is completely contrast to what we just mentioned in the spy. That doesn't mean it couldn't have a bounce. But looking back, again, zooming out at that monthly situation, I love those monthly charts, this broke down under the 23-month long before the spy did, number one. Number two is, it broke the 80-month. That's a six to seven-year business cycle. Typically, that would be a recessionary indicator, because it means a real turn down in terms of the business cycle.
So yet it's a monthly, so that means we have some chance, maybe of getting back over 170, if we're looking at IWM, but right now, that seems like a Herculean task. And if this can't make it, then I would not necessarily stay very positive in anything.
JARED BLIKRE: All right. It looks like transportation kind of in a similar vein here. I want to skip ahead though to NVIDIA actually. We were just talking about this over the break. And we have this island here, if you want to call it, that it's basically a three or four-month consolidation. But we're at the lower end of this, and if you look real closely and squint, you can see kind of a head and shoulders top as well.
MICHELE SCHNEIDER: Well, yeah, NVIDIA of course, would be obviously something that everybody's going to have eyes on to represent the chip industry. And of course, we have some fundamental reasons to be a little bit concerned with China. But just from a technical standpoint, there's also that big gap that you saw on the original chart.
JARED BLIKRE: Here we go. Right there.
MICHELE SCHNEIDER: So this is another scary situation in that you're right, head and shoulders top could emerge. And if we start to fill into that gap territory, I do not look at that as a healthy sign. It seems to me that the whole semiconductor growth stock space got a little rich, especially when we just looked at transportation--
JARED BLIKRE: Too much hype?
MICHELE SCHNEIDER: Yeah, too much hype. So yeah, I wouldn't be surprised to see a bigger correction there.
